Fraud, Waste, Abuse and Big Scary Numbers

Drawing distinctions is important for better policy responses. That doesn't happen very often.

When the spending of public money is at issue, fraud, waste and abuse are almost always lumped together--and joined with big scary numbers to make our society seem worse and government more incompetent. Better policy responses depend on drawing appropriate distinctions among fraud, waste and abuse and on placing their impact in proper context.

Fraud is theft. Fraudulent acts are intentional violations of law committed for the personal benefit of the perpetrator. The benefit sought is usually monetary and involves some sort of subterfuge or attempt to avoid detection. A classic case is the recent one in which a garage attendant at the Air and Space Museum's facility near Dulles Airport undercounted cars and pocketed about $400,000 in parking fees over the course of several years.

Abuse also is intentional and also involves some sort of direct benefit to the abuser. But while abusive acts are often committed in violation of internal policies and procedures, they are not violations of law and therefore cannot be prosecuted. Abuse involves taking beyond reasonable limits privileges and resources that employees or officials need to enable them to carry out their responsibilities. The acts committed by General Services Administration officials in the agency's Las Vegas conference scandal are examples of abuse. Abuse, when it is detected, usually results in disciplinary action, as it did at GSA.

Waste is simply the suboptimal use of resources. Because human decision-making cannot be perfect and we cannot precisely predict the exact amount and types of resources needed to carry out a particular program or activity, a certain amount of waste occurs in every human endeavor. When large amounts of waste occur, they are usually just the result of bad decisions with no particular intent on anyone's part to personally benefit. Examples of significant amounts of waste might be buying more vehicles than an agency actually needs or buying the wrong type of equipment.

Grouping these three different types of problems together conceptually, as critics of government spending so often do, makes them more difficult to deal with because minimizing their damage requires three completely different approaches. For each of these types of problems there are well-known tools that work. Fraud prevention requires good internal controls, which can minimize "retail"-level fraud losses from rank-and-file workers, and a strong governance structure, which can minimize "wholesale" fraud by those at the very top of the organization. Effective management practices, again, aligned with transparency and good governance, can minimize abuse. And industrial engineering and "lean" management are all about reducing real waste.

Unfortunately, in the case of government, this discussion is further clouded by the fact that sometimes what is characterized as "waste" is debatable. A typical example is U.S. Sen. Tom Coburn's annual "Wastebook" report. This year's edition charges that the federal government "wasted billions of dollars by allowing questionable tax breaks and paying for unnecessary programs." But some people might think that those tax breaks were a prudent use of government resources, or that those "unnecessary programs" are actually vital ones. No amount of industrial engineering will eliminate this kind of "waste"; what the senator needs instead is more votes.

Not only are these three completely different problems lumped together, but then the total loss associated with them--the big scary number--is typically reported without being put in context by comparing the losses to total program spending or including the per-capita or per-unit amounts. A recent example is news coverage of an inspector general's audit of the Supplemental Nutrition Assistance Program in Texas, which reported losses of $500,000 per month to abuses including issuing of food stamps to dead people. What wasn't reported was that the error rate was only about one tenth of one percent or that there was little evidence of intent to defraud or abuse the program.

Making the correct distinctions and placing the amounts involved in proper context is vital to serious discussions about how to provide efficient and effective government. Those who mount the public soapbox to thunder about fraud, waste and abuse as if it were all the same thing no doubt revel in the attention they receive and, of course, bigger, scarier numbers mean more attention. But the rest of us should remember that what these people are doing damages the policy process, demeans good public employees, dismays the public and is detrimental to honest, competent government.